Income tax understanding and 40% and D0 tax code

peteuk

I have received a letter from my pension provider (HM Gov) with a possibility to switching my pension.  In crunching the numbers I looked at my tax codes and income tax payments.

2021-22 - I underpaid income tax by £800
2022-23 - I underpaid income tax by £3.00
2023-24 - I overpaid income tax by £300
2024-2025 - Paying back the £500

I have a set income with a £250 bonus per month (£3K 0n top of my wage) and a £12K pension.  At present for 2024-25 I will yet again be over the £50K tax bracket.   Now my understanding is your tax code shows how much you can earn tax free and then the brackets indicate the % you earn.

£12750 - 0%
£12751 - £50,270 - 20%
£50,271 - £100K - 40%

At present my pension takes the 0% and my wage is BR (20%).

So when I spoke to HMRC their answer was a D0 tax codes, which i believe will take out my 20% and have all my earnings taxed at 40%.  At present I have calculated the under payment will be £300 for 2024-25 and with a wage rise (basic income) 2025-26 would be approx £800.

I know a D0 tax code would avoid the underpayment, but equally in my mind it pays 40% on my whole wage. So my income tax will be increased £7,503 to £15,007 which will affect my take home. 

Can someone confirm my understanding of payment brackets and advise me if there’s anyway of avoiding the D0 tax code. 
 

Flugelhorn

Not sure there is - I had D0 on all my earning after I started taking my pension- overall you get the same take home pay when pension and earnings are added together. 

Dazed_and_C0nfused

I think you can only have a D0 code if your main source of income (main in HMRC's eyes, so not necessarily the largest amount) is liable to 40% tax on its own.

If you have two sources both under the 40% rate then you would have a rate band adjustment (deduction) in your main tax code (the one that isn't D0).  This is always an guesstimate, you can keep it as accurate as possible by making sure you update your Persona Tax Account with details of your estimated taxable income from each source when anything changes, pay rise, bonus etc.

The Personal Allowance is still £12,570, not £12,750

peteuk

Flugelhorn said:

Not sure there is - I had D0 on all my earning after I started taking my pension- overall you get the same take home pay when pension and earnings are added together. 

These figures are rounded up/down for ease.

Basic pay - £36.5K
Additional pay - £3K
Pension £12K

Total earning (2025-26) is £51.5K so the amount due at 40% is just over £1K.  So for approx £400 I was hoping to avoid the D0 tax code.

Putting the D0 code on my pension would be less of an impact. Would adding £100 to my pension payment reduce the tax burden and so keep me under the £50,271K bracket.?